Options Trading News

April 4, 2014  Fri 3:47 AM CT

A large call spread is betting that Resolute Energy will rebound from a steep drop last month.

optionMONSTER's Heat Seeker system detected the purchase of 4,000 September 7.50 calls for the ask price of $0.75 and the sale of 4,000 September 12.50 calls for the bid price of $0.05 yesterday. The volume dwarfed the previous open interest of 56 and 193 contracts respectively at the two strikes, indicating that this is new positioning.

This bullish vertical spread cost $0.70 to open, which is the maximum potential loss if REN remains below $7.50 through expiration in mid-September. The maximum gain of $4.30 would be realized with the stock at or above $12.50 at that time.

The trade follows put selling identified by our scanners on March 17. (See our Education section)

REN gained 2.71 percent yesterday to close at $7.20. The oil and gas driller ran up to $9.65 going into its March 10 earnings report but plunged after announcing the results and hit an all-time low of $6.45 the following week.

Yesterday's call spread pushed total option volume in Resolute to 9,755 contracts, more than 8 times its daily average for the last month. Only 33 puts changed hands in the session.
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I have written a few things on the Covered Call Strategy over the last two weeks. Please understand that those two previous articles plus this one do not constitute a proper, fully in-depth lesson on the Covered Call Strategy like we have in our classes at Option Monster Education. I have picked out a few topics that I believe were worth noting and today I am going to add the final one.

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